TRIPOLI, Sept 1 (Reuters) - No end is in sight to the worstdisruption to Libya's oil industry since the civil war in 2011as armed groups, security guards and oil workers with triballoyalties shut down pipelines and oil ports across the country.

Central state power is already tenuous and separatist groupsare exploiting the stoppages, but the government risks bloodyclashes with tribal militias if it sends ill-equipped nascentarmy units to capture oil terminals held by armed groups.

"These militias are intoxicated with power," said a seniorLibyan official, adding that Prime Minister Ali Zeidan'sstrategy was to appease oil workers and apply tribal mediationwith caveats and incentives to end the standoff.

Zeidan, accused of allowing corruption to flourish, can illafford to prolong a crisis that the government says has alreadycost more than $2 billion, threatening Libya's healthy foreigncurrency reserves, power supply and remnants of law and order.

Libya's oil production has fallen to just over 10 percent ofcapacity due to a month-long disruption by armed security guardswho shut the main export ports in the east and centre over paydemands.

In the past week the strikes have spread to the westerncoastal ports and armed groups have also closed taps onpipelines from major oil fields, threatening the major northAfrican oil producer with economic paralysis.

"It's a tribal war to terminate the political process. Theywant a body that represents the tribes," Noman Benotman,president of Quilliam, a counter-terrorism think tank, said."Practically the government is dead, technically it is stillthere."

"DECLARATION OF WAR"

Calls for federal rule have become stronger since Gaddafi'soverthrow in 2011, fuelled by complaints in the east that it hasnot been given a fair share of Libya's wealth, and the weaknessof the central government.

Any military move by Tripoli to deploy troops to retakecontrol of the port terminals would be "considered a declarationof war", federalist Ibrahim al Jathran told cheering crowdsgathered in the eastern coastal town of Ajdabiyah on Monday.

Jathran, ousted this month as chief of the PetroleumFacilities Guards in the eastern region for leading strikers, ishead of a self-governing political council announced in the oiltown of Ras Lanuf on Aug. 17.

The federalists say they are not separatists and only want abigger role and better distribution of wealth.

Most of Libya's oil is in the east, separated from the morepopulous west by a vast desert. The federalists areconsolidating control over the east, steeled by the convictionthat Tripoli let them down in the fight against Gaddafi.

Karim al-Barase, a federalist activist, said federalistswere planning to set up a new oil company in the east to handlethe region's oil exports transparently and ensure they were notstolen "by a corrupt elite that was no better than Gaddafi".

Despite tough talk of bombing any tankers that tried to shipoil bought independently of the state, Zeidan has steered awayfrom any mention of sending the army to capture the oil fields,saying he sought a peaceful end to the standoff.

"Those who expect the government to resolve the securitysituation overnight are not seeing the situation clearly," hesaid on Wednesday.

Industry executives give countless examples of how armedgroups and tribal militias disrupt work in oil fields as faraway as al-Feel and Essharara in the southwest to Sarir, Amal,and Nafoora in the southeast.

Some demands are purely monetary.

In the giant El Feel field in the deep southwest, local andforeign workers are confined to camp as militias from the desertarea negotiate in the town of Zintan, around 136 km (85 miles)southwest of Tripoli, with a government-backed military councilon how much they must get to end a siege of the pipelines, aWestern based oil company executive said.

Bentoman said central power stretched only to Misrata in theeast and Janzour in the West. "Outside, they have no powerwithout authorisation of local leaders. The southern part ofLibya is the wild west. There is no presence of government."

Even on the outskirts of Tripoli, the country manager of asupplier of oil equipment said it was forced to enlist membersof a militia to guard the company. "You don't need to call allthe staff to get a strike, just five disgruntled people candisrupt work," he said, on condition of anonymity.